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By Eric Auchard

SAN FRANCISCO, March 31 (Reuters) – IBM is under investigation by
the U.S. Environmental Protection Agency over an $80 million bid it
made in 2006 to modernize EPA financial systems and has been suspended
from seeking new contracts with all U.S. agencies, the company said on

In addition, IBM said the U.S. Attorney’s Office for the Eastern
District of Virginia had served IBM and certain employees with grand
jury subpoenas requesting testimony and documents on interactions
between the EPA and IBM employees.

International Business Machines Corp, the world’s largest provider
of computer services, said it only learned on Friday of the temporary
suspension from the Environmental Protection Agency (EPA) tied to
possible violations of ethical bidding provisions on an EPA contract
IBM had submitted in March 2006.

IBM shares, which closed up 57 cents at $115.14 in regular New York
Stock Exchange trading ahead of the disclosure, lost $1.75, or 1.5
percent, to trade at $113.39 in extended trade.

The temporary suspension applies to all federal agencies and IBM
business units. IBM may continue work on existing contracts as of the
date of the suspension, unless a particular agency directs otherwise,
the company said in a statement.

IBM spokesman Fred McNeese said the company had been blindsided by
the government suspension. IBM plans to cooperate in the investigation
but will fight to limit the scope of its suspension from bidding on new
contracts, he said.

"We are going to cooperate with investigators but we are also going
to take all appropriate actions to challenge the scope of this action,"
McNeese said in a telephone interview.

The company started receiving calls on Friday from outside parties
informing it that IBM’s name was on a Government Services
Administration site listing parties barred from bidding on federal
contracts, McNeese said. After inquiries, IBM received a letter of
suspension from the EPA, he added.

The spokesman for Armonk, New York-based IBM said the bid covered a
financial systems modernization contract that has yet to be awarded. He
confirmed that the value of IBM’s bid was around $80 million and was
for a systemwide EPA project.